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It seems so easy to see other people’s blind spots while our own often elude us. My husband, for example, is “technology challenged.” Ten years ago, I was able to coax him into using the Internet when he found out he could get a plethora of sports information on his computer. His home page now has San Francisco Giants team information and he uses bookmarks galore for his various sports outlets. He has the basics down now, which sounds good, but he doesn’t really understand how far behind he is. To give you an example, he doesn’t know how to create a “new window” in Explorer and gets extremely frustrated when he accidently opens one, it takes over his screen, and he thinks he lost what he was working on (which was safely hidden behind the window he just opened). A simple solution for him is to take a few classes or spend some time in the tutorials and a whole new world will open up for him.

The problem is he doesn’t know what he doesn’t know. The constant frustration also chips away at his confidence so he doesn’t even trust what he does know when it comes to technology issues. I see asimilar phenomenon in my work as a financial planner/educator since my job is to point out the financial blind spots of the employees I meet with who utilize our worksite financial planning or financial helpline services. Fortunately, once we uncover these blind spots, there are often some very simple steps to take or missing links to connect that can make the difference between being financially successful or not.

Here are three common blind spots people often share:

People approach cash management backwards. When establishing a cash management plan or budget, people tend to start at the wrong place—looking forward instead of backward. Last week I had two days of financial planning sessions with employees at their worksite and every single person who had cash management questions had the exact same blind spot. Their approach to budgeting was to start with a list of bills and a corresponding list of when they were due. Not that paying bills isn’t important but it’s just not the best approach to cash management. Paying a bill is a reactive action. Planning your spending each month and tracking it is taking proactive action.

Setting up a “bill due – pay it” spreadsheet doesn’t put you in control of your cash flow and ultimately your wealth building. It is as if the bill has the power over you rather than the opposite. What is missing in this scenario is “you.” A more productive way to start approaching cash management planning is to look backwards and analyze where you have been spending your money over a period of time, say three months, then take the information and set spending targets depending on your needs, your values and your financial goals. I did this for the first time a few years ago and was shocked to find out how much I was spending on socializing during lunch and happy hour with my girlfriends – hundreds of dollars each month. Friendships are high on my list of importance so I wanted to nurture them but I didn’t want to pour thousands of dollars down the drain either. I made a change and started suggesting alternatives such as meeting at a park and walking the dog, going to a museum or art gallery, and other types of activities where I could visit with my dear friends but curb the spending.

Without the simple act of analyzing where I was currently spending my money, I wouldn’t have uncovered the blind spot and it literally could have cost me tens of thousands of dollars. Money management sites such as Mint.com and old standards such as Quicken.com make it simple to get a handle on your cash flow. You can literally do everything all in one place: analyze where your money is going, proactively set spending targets and monitor your spending on an ongoing basis.

Assuming the status quo will never change. In the 1990’s the stock market went up nine out of ten years and everyone assumed the market would continue producing returns of over 15% a year even though those returns were unusually high. At the time, investors chose their mutual funds by looking at the previous year’s performance, which in certain years could have been upwards of 50% (unfortunately many investors still make this mistake). What they didn’t understand, of course, is that the investments had just outperformed average returns by about four hundred percent and there was little chance it would happen again, especially as new cash poured into the fund. Did investors really think the investment performance would be repeated? They did. They were looking at the status quo and assumed it would never change – it would be rosy again the following year. It wasn’t.

Today investors are looking at the other side of the same coin. In what has often been referred to as the lost decade of the 2000’s, the S&P 500 underperformed the historical market averages. The fact that there was such a great deal of volatility only seemed to make things more complicated. The financial crisis, the housing crisis, and high unemployment certainly contributed to a lack of confidence. However, the question remains: do we really think the market will significantly underperform in the long-term? In a recent study conducted by MFS Investments , twenty five percent of investors indicated they liquidated a portion of their portfolio in 2010 or 2011 due to market concerns. Respondents cited rising health care costs (78%), the growing federal deficit (72%), and increases in taxes and legislative gridlock (both 66%) as their top concerns over the next 12 months. More than one-half (53%) of the people surveyed feared a major drop in the stock market over the next year as well, an increase from 47%.

I wrote about this phenomenon in a previous blog about Gen Y investors and suggested they “embrace the bear” but this affects every investor with a long-term time frame. Just as it didn’t make sense to throw money at the stock market at the peak of the bubble in the late 90s, today it doesn’t make sense to stay in cash investments for long-term investors. We may be looking at an opportunity to accumulate shares of solid companies at reduced prices during this bear market. Will next year be gloomy? It might but gloom won’t always be the status quo.